FCA opens the door to on-chain funds — but stops short of full crypto integration

The UK Financial Conduct Authority has introduced new guidance to support the adoption of tokenized funds. This marks a step toward integrating distributed ledger technology [DLT] into traditional asset management. The regulator said firms can now use blockchain infrastructure within existing rules. It removes uncertainty around how tokenization fits into current frameworks. The move is designed to make it easier for asset managers to adopt tokenization without requiring a complete overhaul of regulatory structures. Direct-to-Fund model aims to streamline fund operations A key part of the update is the introduction of an optional Direct-to-Fund [D2F] dealing model. Under this structure, investors can transact directly with a fund rather than through intermediaries. This enables a more streamlined, single-stage process for issuing and redeeming units. The FCA said this model could improve efficiency and better support tokenized fund structures, particularly where on-chain settlement is involved. DLT records and public networks gain regulatory clarity The guidance confirms that firms can maintain fund records on blockchain systems, including public networks, provided appropriate controls are in place. In a notable shift, the FCA said on-chain records may serve as the primary books and records for fund transactions, removing the need for full off-chain duplication in certain cases. This provides a clearer path for asset managers exploring fully digital fund infrastructure. Tokenization seen as efficiency and access driver The regulator highlighted the potential for tokenization to lower costs, improve operational efficiency, and broaden access to investment products. The UK's asset management sector, which oversees around £16.5 trillion in assets, is expected to play a central role in this transition. The FCA said its approach is intended to support innovation while maintaining existing standards for investor protection and market integrity. Full crypto integration remains a longer-term goal Despite the progress, the guidance stops short of fully integrating crypto-native systems into fund operations. While the FCA is open to the use of stablecoins and digital cash for settlement in the future, these developments are expected to follow a phased approach alongside broader regulatory changes. For now, tokenization is being positioned as an enhancement to existing financial infrastructure rather than a replacement. Final Summary The FCA has introduced guidance enabling tokenized funds and a Direct-to-Fund model, allowing blockchain infrastructure within existing asset management rules. While the move supports on-chain finance adoption, full crypto integration remains gradual, with regulatory controls and phased implementation still in place.